The Determinants of CJK’s Vertical Intra-industry Trade to ASEAN4 Countries

Abstract

Firms have openly responded to the challenges of globalization by giving a process of product integration across national boundaries. Production stages are often conducted in more than one country. This practice exploits inherent locational advantages such as proximity to markets and access to low-cost labor, and it gives rise to a sequential method of production in which one country exports a component to another country that uses it to produce a product which is subsequently shipped back to that country or is exported to other countries (Clark 2005). Hummels et al. (1998) uses the term “vertical specialization” to describe this pattern of production and trade. Outputs from different stages of production that are exported for processing and are subsequently imported contribute to intra-industry trade (ITT) because resulting trade flows involve exchanges of related goods that are often recorded under the same industry classification.